Political vs Cosmopolitical Economy
by Serban V.C. Enache
The Globalist View on Statehood
Globalist premise. Most products have developed a complex geography – with parts made in different countries and then assembled somewhere else (goods of trans-national origin). Markets when left alone will allocate resources optimally, thus leading to efficiency and low prices. This, of course, requires the free movement of capital, commodities, and labor. All barriers – like capital controls, trade unions, welfare programs, minimum wage laws, nationalized services etc – will distort prices and lead to malinvestment (waste).
Globalist conclusion. Nation states are defunct and the whole concept of national sovereignty is obsolete.
This seemingly natural, orthodox view of the world goes by various names – neoliberalism being a popular label today – but there is nothing natural about this stage of history.
The liberal epoch of trade during the 19th century was about governments actively pursuing new markets in foreign countries. International commerce and finance was especially important for the colonial powers. The United Kingdom for example gave charters to investment entities such as the East India Company to exploit their colonial possessions. This company in particular was akin to a state in and of itself. It had its own constitution, its own governing body, and its own army. Outright globalization failed to develop owing to geopolitical rivalries and mercantilist policies carried out among and between imperial powers. Later, all these tensions would culminate with the first world war.
Fast Forward to Rentier Market Economics
In the aftermath of world war two, government intervention in the economy became the norm – welfare policies and social-democracy. This process was short lived, though. During the 1980s, the monetarist and neoliberal counter-currents actively eroded the welfare state and the concept of social democracy; this bitter phenomenon continues to this day.
That counter-revolution (the Washington Consensus) had a set of ideological prescriptions grounded in an old and shallow trade theory – that of comparative advantage – to be followed regardless of consequences. It was supposed to eliminate market imperfections caused by welfare capitalism, also labelled government interventionism, also labelled socialism.
The tenets were simple. Free-movement of labor and capital. Labor markets that favored the buyer of labor, not the seller. Narrow space for fiscal and monetary policies. No capital controls. Keeping unions weak or eliminating them entirely. Zero-hour contracts. Keeping a section of the population in a state of permanent and involuntary unemployment (the NAIRU). Stagnant wages. Increased private debt levels. Increased inequality. Regressive taxation – and placing most of the fiscal burden on labor, improvements to the land, and (basic) consumption, while favoring big capital and rent seekers with a smaller tax burden. In short, taxing wealth creation and barely taxing wealth extraction (thus incentivizing it).
The Dominion of Trans-National Capital
From this new mutation in geopolitics, this new orthodoxy, entities emerged from and among states – the trans-national corporations; and they are now more powerful than ever. According to the fatalist or defeatist view, the state is always subservient toward trans-national capital. If we’re talking about Greece or Romania, that is certainly true, for they are not sovereign states. However, the power dynamics between actual sovereigns and trans-national corporations are different. It’s often a mix of partnership and rivalry – subservience is rare and it doesn’t last long. Often they have divergent goals, but states and trans-national capital need each other.
The fittest institution to invest in the physical economy (roads, hospitals, railways, ports etc), human capital (skill development), science and technology is the state. Without this infrastructure, the operations of trans-national capital would not be possible.
The East Asian Development Model
During the post-war period both Japan and South Korea worked hard to keep trans-national capital at bay, principally by levying import controls. Both countries were geared towards exports. The reasoning behind this policy was that sound protectionist measures to foster domestic industries couldn’t work in a liberal or liberalized economy.
This nation-building developmental strategy was first outlined by the Historical School, particularly the 19th century German economist Friedrich List. China, South Korea, Taiwan, and Singapore developed under this model – so did Britain, Germany, and the United States much earlier.
Friedrich List and the Historical School
List’s argument was that Germany should follow actual English practice rather than the abstractions of Adam Smith’s doctrines. In Chapter II: The Hansards of his book – The National System of Political Economy, he writes:
“Had the English left everything to itself – ‘Laissez faire, laissez aller’, as the popular economical school recommends – the [German] merchants of the Steelyard would be still carrying on their trade in London, the Belgians would be still manufacturing cloth for the English, England would have still continued to be the sheep-farm of the Hansards, just as Portugal became the vineyard of England, and has remained so till our days, owing to the stratagem of a cunning diplomatist. Indeed, it is more than probable that without her [highly protectionist] commercial policy England would never have attained to such a large measure of municipal and individual freedom as she now possesses, for such freedom is the daughter of industry and wealth.”
In short, the cost of a tariff should be seen as an investment in a nation’s future productive powers. Contemporary critics of this model foolishly dismiss it as “subsidizing rich business men” and “punishing consumers with higher prices.” In my view, they fail to see the other half of the balance sheet and its implications, both in the present and long term.
Contrary to what the followers of Adam Smith believed, Friedrich List considered that Napoleon’s Continental System, aimed solely at damaging Britain during the bitter long-term conflict, had in fact been good for German industry. In the preface of that same book, List writes:
“I perceived that the popular theory took no account of nations, but simply of the entire human race on the one hand, or of the single individual on the other. I saw clearly that free competition between two nations which are highly civilized can only be mutually beneficial in case both of them are in a nearly equal position of industrial development, and that any nation which owing to misfortunes is behind others in industry, commerce, and navigation, while she nevertheless possesses the mental and material means for developing those acquisitions, must first of all strengthen her own individual powers in order to fit herself to enter into free competition with more advanced nations. In a word, I perceived the distinction between cosmopolitical and political economy.”
In other words, a nation’s true wealth is the full and multifaceted development of its productive powers, not its current exchange values. For example, the nation’s economic education is more important than immediate production of value, and it might be right for one generation to sacrifice its gain and enjoyment to secure strength and skill for future generations. All measure of achievement is attained through sacrifice. Under normal conditions, a nation would develop agriculture, manufacturing, and commerce. However, the last two factors were more important since they better influenced the nation’s culture and independence via navigation, railways, and overall higher technology, while – in contrast – purely-agricultural countries tended to stagnate.
List pointed out that only countries in temperate regions were adapted to grow higher forms of industry. He contended that Adam Smith’s economic system is not an industrial system, but a mercantile system, which he called “the exchange-value system.” Contrary to Smith, he argued that the immediate private interest of individuals would not lead to the highest good of society.
Between the individual and humanity stood the nation; and the nation was defined by its language, customs, historical development, culture, and constitution. Unity was the primary element that ensured the individual’s security, well-being, progress, and civilization. Private economic interests, like all others, had to be subordinated to the preservation, completion, and strengthening of the nation. All of this fits with Natural Law as well, a subject thoroughly researched and beautifully written by Emmerich de Vattel.
List theorized that nations of the temperate zone (furnished with all the necessary conditions) naturally pass through stages of economic development. These are: pastoral life, agriculture, agriculture united with manufacturing, and, finally, the stage in which agriculture, manufacturing, and commerce are combined. During this historical journey, the state must strive for progress using legislative and administrative actions.
In his book, The National System of Political Economy, Chapter XIV: Private Economy and the National Economy, Friedrich List writes:
“In a thousand cases the power of the State is compelled to impose restrictions on private industry. It prevents the ship-owner from taking on board slaves on the west coast of Africa, and taking them over to America. It imposes regulations as to the building of steamers and the rules of navigation at sea, in order that passengers and sailors may not be sacrificed to the avarice and caprice of the captains. In England certain rules have recently been enacted with regard to shipbuilding, because an infernal union between assurance companies and ship-owners has been brought to light, whereby yearly thousands of human lives and millions in value were sacrificed to the avarice of a few persons. In North America millers are bound under a penalty to pack into each cask not less than 198 pounds of good flour, and for all market goods market inspectors are appointed, although in no other country is individual liberty more highly prized. Everywhere does the State consider it to be its duty to guard the public against danger and loss, as in the sale of necessaries of life, so also in the sale of medicines… But the cases which we have mentioned (the school will reply) concern unlawful damages to property and to the person, not the honourable exchange of useful objects, not the harmless and useful industry of private individuals; to impose restrictions on these latter the State has no right whatever.”
Every nation should begin with free trade, stimulating and improving her agriculture by trade with richer and more cultivated nations, importing foreign manufactures and exporting raw products. When it is advanced enough to manufacture for herself, then protection should be used to allow the home industries to develop and save them from being overpowered by the competition of stronger foreign industries, the goods of which are present in the home market. When the national industries have grown strong enough that this competition is not a threat, then the highest stage of progress has been reached; free trade should again become the rule. What a nation loses in exchange during the protective period, it more than gains in the long run in productive power (know-how, physical infrastructure, and industrial capacity).
Non-sovereign states lack the socio-political structures and institutions that could bring about desired change. The class structure of these non-sovereign states is dominated by self-serving elites (let’s call them the public mafia) whose interests are aligned with those of the imperial and colonial agents. Thus, the exploitation and looting of these non-sovereign states comes from within and from without. They are stuck in the extraction of raw materials phase. This makes them prone to price stagnation and decline over the long run, and economic dependence on foreign goods to satisfy basic needs.
The Peace of Westphalia 1648
Fought primarily in Central Europe, the Thirty Years’ War was one of the longest and most destructive religious conflict in recorded history, producing 8 million deaths from war, plague, and famine. Initially a war between Protestant and Catholic states in the fragmented Holy Roman Empire, it slowly grew into a more general conflict involving the other great powers of Europe. The latter countries employed large mercenary armies, and the war became less about religion and more about the French–Habsburg struggle for European geopolitical dominance.
In 1648, the Thirty Years’ War came to an end. Peace negotiations were held during 1644 and 1648, and in the end, Protestants, Catholics, monarchies, and republican forms of government were treated as having equal status. The peace treaty defined the principles of sovereignty and equality in numerous sub-contracts, and in this way became the constitution of the new system of states.
This peace treaty stated a new idea and sentiment. Article I: “[…] And this Peace must be so honest and seriously guarded and nourished that each part furthers the advantage, honor, and benefit of the other… A faithful neighborhood should be renewed and flourish for peace and friendship, and flourish again.”
Translation? We can only have peace among different nations if each develops itself fully, if each nation regards as its self-interest to aid the other nations in achieving full development, and vice versa.
Article II: “On both sides, all should be forever forgotten and forgiven. What has from the beginning of the unrest, no matter how or where, from one side or the other, happened in terms of hostility, so that neither because of that, nor because of any other reason or pretext, should commit, or allow to happen, any hostility, unfriendliness, difficulty, or obstacle in respect to persons, the status, goods, or security himself, or through others, secretly or openly, directly or indirectly, under the pretense of the authority of the law, or by the way of violence within the Kingdom, or anywhere outside of it, and any earlier contradictory treaties should not stand against this. Instead, all and every, from here as well as from there, both before as well as during the war, committed insults, violent acts, hostilities, damages, and costs, without regard of the person or the issue, should be completely put aside, so that everything, whatever the one could demand from the other under his name, will be forgotten in eternity.”
The second article doesn’t refer solely to amnesty (the abandonment of criminal prosecution) – it emphasizes a better future by forgetting the ills of the past.
The difference is not trivial. Let’s compare the maxim “In forgiving lies the substance of peace” with Article 231 of the Versailles Treaty on war debt (1919). “The Allied and Associated Governments affirm and Germany accepts the responsibility of Germany and her allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies.”
The Versailles Treaty did not produce a lasting peace and ordered nations, but led to world war II; that’s because it was just a geopolitical ceasefire, upon which (international) rent seekers cashed in. In contrast to the principle of ‘victor’s whim’ (the usual outcome of past conflict resolutions), the Treaty of Westphalia stated that peace and forgiveness are the highest objectives in a community of states.
Westphalia was far from perfect, though. For instance, it consolidated the sovereignty of Germany’s princes, leading to factious politics. Germany (40 percent of which was destroyed at the time) had to face larger influences exerted by foreign powers against her – because these foreign powers could ally with the sovereign princes. Still, the end of the Thirty Years’ War and the Peace of Westphalia were a great leap forward in international law and in the revival of economic dirigism – in which the states, owing to the great destruction and poverty caused by the war, had to take charge and rebuild their own countries.
This had an enormous significance on the evolution of economic theory in Germany, the Historical School and Chartalism (state theory of money) in particular. The ideas of Friedrich List (part of the Historical School himself) stemmed from the socio-economic experiences made possible by the Peace Treaty of Westphalia.
I believe List captures the essence of it all through this paragraph from his 1833 treaties, On a Railway System in Saxony as the Foundation of a General German Railway System:
“People will probably ask me, where will Bavaria get the money to complete such giant works [railways]? I answer, that I have not yet seen any silver or gold in any of the canals or railways. To build them we use only consumer goods, steel, stones, wood, manpower, the power of animals. But is there not a surplus of all this in Bavaria? To the extent that we transform this surplus into canals and railways, which are not yet in existence, we create permanent and enduring value, we create an instrument which doubles the productive power of the entire nation. The money, however, does not leave the country, it only settles accounts.”
I believe the sovereign nation state to be the most efficient entity capable of delivering quick and radical socio-economic progress. No super state institution can compete with it, for in the people’s eye, it lacks the moral authority to represent them, it suffers from huge bureaucratic overhead, and brings with it corruption on an unprecedented scale. And let’s be clear, what are the vehicles used to impose the super state institution’s will? Trans-national corporations and individual states who find themselves in service to the hegemonic power, be it a regional hegemony or a trans-national one. Call me a romantic over Westphalian sovereignty, super state institutions can never replace those parent nations which produced them. If they could, given mankind’s history – we (or most humans) would be living today under a singular state and that state would be called Babel. In theory there’s nothing wrong with that. In practice there’s everything wrong with it.
Serban V.C. Enache is a Romanian journalist and indie author. Though interested in history, politics, and economics, his true passion is for medieval fantasy fiction. https://www.amazon.com/Serban-Valentin-Constantin-Enache/e/B00N2SJD6O/